What is the Qualifying Expenditure for Land Remediation Relief?

Qualifying expenditure for Land Remediation Relief includes costs associated with the removal, containment, or assessment of contaminants. However, for the expenditure to qualify, it must be incurred because the land or property is in a derelict state. 

An essential condition for expenditure to qualify is by the ‘But For’ test, which means the costs mustn’t have been incurred if the land had not been in either a contaminated or derelict state. 

A common example of qualifying expenditure for LRR is the removal or treatment of Japanese knotweed, arsenic, hydrocarbons, radon, or asbestos – all of which can potentially make land or property unsuitable for safe, commercial use. 

To learn more about qualifying expenditure for Land Remediation Relief, and which costs do and don’t qualify in the UK, continue reading.

 

What Does Qualifying Expenditure Mean?

 

Qualifying expenditure refers to specific costs incurred by eligible companies for tax relief, such as Land Remediation Relief (LRR), capital allowances, and Research and Development (R&D) tax credits. LRR specifically allows 150% of qualifying expenditure for cleaning up contaminated or derelict land in the UK, given the expenses meet strict criteria. 

Meeting the criteria is necessary for expenses to be recognised as qualified relief by HMRC. However, it’s important to understand that qualifying expenditure doesn’t have a single definition, and can change depending on the type of relief. 

 

What Costs Qualify as Expenditure? Key Qualifying Expenditures

 

HMRC often recognises several key types of qualifying expenditure for LRR, including: 

• Employees – Gross salaries, National Insurance (NI), and pension contributions for staff who are engaging in remediation work. 
• Fees – Any additional fees paid out for specialist services, such as thorough site investigations, planning, and surveys.
• Materials – Cost of materials required to complete the remediation process efficiently, including chemical agents, gas-resistant membranes, concrete, protective liners, and specialist containers. 
• Other Costs – Payments that were made to third-party contractors for carrying out any remediation activities that qualify, such as hazardous waste handling fees, transport, and disposal. 

 

However, please note that expenditure on removing Japanese knotweed material to landfill is excluded for claims relating to expenditure incurred on or after 1 April 2009.

 

What Costs Don’t Qualify as Expenditure?

 

Common costs that typically don’t qualify as expenditure for LRR include: 

• Costs covered by the Government 
• Costs covered by third-party compensation 
• The actual purchase price of the land or property and rights over it 
• Interest incurred on loans or other types of finance
• Improvement beyond land remediation 
• Remediation work carried out before you acquired an interest
• Landfill Tax payments
• Standard work that would have been completed regardless, such as general site clearance 

 

Conditions for Land Remediation Relief Eligibility

 

You must meet strict conditions for LRR eligibility:

 

Eligibility Condition	Requirement
Major Interest	Your company must have a major interest in the contaminated or derelict land, with either freehold ownership or a long-term leasehold interest
No Previous Connection	Your company must have no previous connection to the land, and must not have caused or contributed to the contamination
‘But For’ Test	Your company wouldn’t have required the expenditure if the land had been in a usable condition when acquired
Time Limitation	According to HMRC’s Corporate Intangibles Research and Development Manual, for the land to be considered long-term derelict land, it must have been derelict since 1 April 1998 or earlier

 

How to Support a Claim 

 

To successfully support your LRR claim, your company must be able to show key pieces of evidence that the expenditure meets HMRC’s strict qualifying conditions:

1. Legal ownership evidence, such as title deeds, lease interest or agreements, contract, and date of acquisition. 
2. Evidence of contamination or derelict land from environmental survey investigations, testing reports, old land records, and contamination assessments. 
3. Proof that remediation work was carried out by your company, including evidence of your strategy, progress reports, photos, and removal of hazardous materials. 
4. Financial evidence to support the amount you can claim, from invoices to employee payroll records and receipts for specific materials and equipment hire.
5. Additional proof of justification for the required remediation work, including consultant reports, and evidence to show that expenditure was incurred due to the contamination.

 

In summary, a strong LRR claim will have strong legal, environmental, activity-related, and financial evidence that clearly demonstrates eligibility in line with HMRC. 

 

Identifying Qualifying Expenditure

If you’re a UK-registered company paying Corporation Tax, you can make an LRR claim. However, you must meet strict eligibility criteria in line with HMRC. If you’re unsure whether or not your costs qualify as expenditure, we can help. 

At LJS Accounting Services, we have an experienced team of accountants who can support you in making an LRR claim by identifying qualifying expenditure. 

To find out more about how we can help identify qualifying expenditure as part of our LRR services, please contact us today.